The crew at DeepSeaNews.com sent the video over to Dr. Timothy S. Wood, an expert on freshwater bryozoa and an officer with the International Bryozoology Association (what fun parties they must have, eh?), and he had this to say about it:

Thanks for the video – I had not see it before. No, these are not bryozoans! They are clumps of annelid worms, almost certainly tubificids (Naididae, probably genus Tubifex). Normally these occur in soil and sediment, especially at the bottom and edges of polluted streams. In the photo they have apparently entered a pipeline somehow, and in the absence of soil they are coiling around each other. The contractions you see are the result of a single worm contracting and then stimulating all the others to do the same almost simultaneously, so it looks like a single big muscle contracting. Interesting video.

Here's a more clear video of these Tubiflex worms in the wild. Not quite as horrifying, but still pretty gross.